Why is a financial management and accounting system necessary? What is a financial management and accounting system? The balance of the Manual then goes on to answer the next logical question: "How is a financial management and accounting system developed?" 1. WHY IS FINANCIAL MANAGEMENT AND ACCOUNTING INFORMATION NECESSARY? Managing any business-and an AAA is, after all, a business-requires that managers make routine decisions that affect AAA operations. In fact, a prevailing definition of management holds that "... the art of management is simply the process of making decisions." Assuming that this is true, it is reasonable to hope that decisions be made on the basis of informed judgment: Managers provides the judgment FMAS helps managers stay informed In the AAA environment, management information is necessary for three purposes: Ongoing Client Service Delivery--Certain information is necessary to provide services, that is, to make decisions about: Participation-Does the client meet the participating criteria? The appropriate course of service-What should the service plan stress and how should staff be assigned? The success of service delivery-Is the client receiving satisfactory services? Should the service plan be modified? Planning and Budgeting-At least once a year, the AAA must assess its position and plan for the future, that is, make decisions about: Program goals and objectives The size of the target population The type of services to be provided and the service delivery strategy The costs associated with the program plan Accounting-This information is crucial to assure the fiscal integrity of the AAA and to make decisions about: Whether to provide direct services or contract with outside providers How to collect client contributions How to assure that match funds are adequate Whether grant funds are properly spent Whether money is being spent and earned at the planned rate Reporting and Monitoring-Periodically, AAA operations must be critically reviewed and evaluated so that decisions can be made about future operations. This accomplishes two things: It provides information about the success/failure of previous decisions It provides the basis for making future decisions Monitoring information helps answer questions about: Program costs-What is the cost of providing services to the average client? Program outcomes-How many clients have received what type of service? This is a tall order for data. Meeting these management information needs can be a very complicated and counter-productive procedure (or, more likely, maze of procedures!) unless data collection and compilation are approached in a systematic fashion, unless a financial management and accounting system is developed. The FMAS described in this Manual addresses the planning and budgeting, accounting, financial management, and reporting and monitoring components of this process. It does not provide a comprehensive system for collecting data about service delivery but does relate these three functions to client outcomes by computing the unit cost of service. It assumes that AAAs have some mechanism in place to measure client service utilization and the quantity of services provided. 2. WHY IS A FINANCIAL MANAGEMENT AND ACCOUNTING "SYSTEM" Think for a moment about the nature of an AAA's data requirements. Essentially, all information required for decisionmaking centers around seven basic management questions: Who? Provided What? To Whom? Where? What Happened? How Much Did It Cost/Earn? If data needs are really the same for most internal management and external reporting uses, it follows that the information can be collected one time in a format that will meet both uses. An efficient system will collect as little informa tion as possible and use it for as many management purposes as possible. A financial management and accounting system (rather than a loose collection of forms and procedures) assures that data gathering and manipulation procedures are easy and efficient and that they produce data relevant for decisionmaking. 3. WHAT IS THE MODEL FINANCIAL MANAGEMENT AND ACCOUNTING The model financial management and accounting system is a set of data input forms, processing procedures, and reports that support decisionmaking in all phases of the management cycle. Accordingly, FMAS is divided into three subsystems that correspond to the major phases of the management cycle: Planning and Budgeting Accounting Report Preparation, and Monitoring Exhibit 5 illustrates the FMAS in flow chart fashion and shows clearly the relationship of FMAS subsystems to the AAA management cycle. The planning and budgeting subsystem describes how an AAA can: Identify appropriate goals and objectives and formulate a program plan Use the program plan and historical data from the other FMAS subsystems to develop quarterly or monthly revenue and expense budgets Use this budget to meet external reporting requirements (i.e., to the SUA) Use the budget throughout the year to monitor its financial status Identify unit costs by type of service The subsystem stresses that detailed planning and budgeting be done once a year but that the plan and the budget themselves become important tools for AAA management throughout the year. (2) The Accounting Subsystem As available funds dwindle, a premium will be placed on internal control and efficiency. The accounting subsystem provides management information for two purposes: Internal Management Control-Recall that the last of the seven basic management questions asked "How much did it cost/earn?" To make decisions about future operations, future |